Running head: ESTIMATION OF THE COST OF CAPITALEstimation of the Cost of CapitalNameCourse NumberState, UniversityInstructorDateESTIMATION OF THE COST OF CAPITAL2The cost of capital of an organization is used to denote the number of funds that arerequired in financing the business of a corporation. The cost of capital is dependent on thetechnique or the mode that is used in financing a particular business (Pratt and Grabowski,2008). If the business is financed through the use of equity, then the cost of capital would betermed as the cost of equity. On the contrary, when the business is financed through the use ofdebt, the cost of capital is denoted as the cost of debt. In most corporations, both debt and equityare used in financing a particular business. Evaluation of the cost of capital of accompanying isimportant as it helps in ascertaining the hurdle rate of an organization. The hurdle rate is used todenote the minimum rate of return that should be achieved for a corporation to generate valueand enhance its profitability (Pratt and Grabowski, 2008). The cost of capital of a corporationcan be impacted by the profitability of the corporation, the historical operations of theorganization and the creditworthiness of the company (Pratt and Grabowski, 2008). Evaluationof the cost of capital of the company helps an organization to make informed decisions regardingfunding of the business and making of investments. Therefore, it is imperative for anorgan ...
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